Europe’s dealers and clearing houses are at loggerheads over a critical European project to mobilise funding and collateral flows. The European Association of Clearing Houses, or Each, has been accused of reneging on its commitment to the project, in what one dealer described as a “disaster for Europe”.

Dealers have long been pushing for Europe’s infrastructure providers to make it easier to access the markets in tri-party repurchase agreements, a form of short-term funding that is facilitated by international settlement houses and fixed-income clearers.

Tri-party repo, which involves a party pledging assets to a second party in return for liquid securities or cash, is becoming an increasingly important source of safe and secured funding as dealers attempt to satisfy burgeoning liquidity obligations.

Currently, Europe’s fixed-income clearers are not connected to all the settlement houses, making it slow and complex for dealers to navigate the tri-party repo market. Dealers have to transfer their assets from one settlement house to another to access certain repo pools.

According to minutes from a meeting held by the European Repo Council in June, the major fixed-income clearers represented by Each agreed to build a new “interoperable” model, which would allow a dealer to access any tri-party repo pool regardless of where its assets are located. The project would increase the speed and efficiency of the repo markets.

During a meeting of the European Central Bank’s securities infrastructure group last month, Each backed out of the agreement, arguing there was no business case for its members. The announcement has provoked uproar among Europe’s dealers.

One head of repo at a European bank, who declined to be named, described Each’s position as “a disaster for Europe” as the region gears up for new trading and capital rules that will require the banking industry to find trillions of liquid collateral, adding: “We are calling on the ECB to intervene. We have to have a strong and integrated repo market.”

However, Marcus Zickwolff, chairman of Each and executive director and head of system design at Eurex, said Each only agreed to the model on condition that it made commercial sense.

He said: “Our members cannot make the investment if there is no commercial business case. We also need to see a commitment from all parties involved.”

Godfried De Vidts, director of European affairs at Icap, who also chairs the European Repo Council, said: “The major shortage of collateral makes it vital that market infrastructures work together to mobilise assets around the financial system. In particular, repo desks – which are going to play a central role in facilitating firms’ liquidity requirements in the new post-crisis reform world – have to have access to as many clearers as possible.”

Daniela Russo, director general of the payments and market infrastructure department of the ECB, said the bank supported the project, which would help Europe comply with international guidelines outlined under the G20 reform agenda.

She added: “Moreover, given the increased demand for collateral, it is in the interest of the financial community to facilitate solutions that make collateral available where required.” Saheed Awan, global head of collateral management at international settlement provider Euroclear, which has been working on the project, said: “Without co-operation from the clearing houses we will not realise the goal of full and fair interoperability. Self-interests need to be put aside for the good of the market.”